Zurich Vista provides a whopping additional 62.5% bonus units during the first 18 months for premium SGD 3,200 per month. These additional units are often the selling points used. But I will show you that the Zurich Vista's bonus units is merely a marketing gimmick.
To analyze Zurich Vista, I used the following parameters:
Premium = 3200 monthly
ROI = 9% per annum or 9%/12 monthly
Expense Recoupment Charge (ERC) = 0.33% monthly on the units accumulated during the first 18 months
Policy Fee = $12 monthly
Policy Management Fee 0.06% monthly on the total policy value
Mirror fund fees 1.2% per annum or 1.2%/12 monthly
Term: 25 years
Based on the above simulation using 162.5% premium allocation for the first 18 months, the return over 25 years for Zurich Vista is 6.87% per annum. The benefit illustration shows 6.49% which is close to my simulation.
If I would to set premium allocation to 100% for the first 18 months while retaining everything else, the IRR is 6.68%.
Thus, the effect on the additional 62.5% bonus units or 11.25 months extra premium only increases the yield by a mere 6.87-6.68 = 0.19% ! The reason why the bonus units hardly increase the yield is because of the extremely high charges on the Initial Units. The Initial Units is the units accumulated during the first 18 months.
Thus, the bonus units is merely a marketing gimmick. The expense ratio of 9% - 6.49% (shown in the benefit illustration) = 2.51% is EXTREMELY high. I strongly discourage anyone from purchasing the Zurich Vista.
This is the same conclusion as Friends Provident’s GWB+. The bonus units do not increase the yield materially. Also for Zurich Vista, the surrender value at the end of 18th month is ZERO. If you do not wish to suffer a surrender penalty, you have to continue paying for the next 25 years! Do not believe your financial adviser that you can stop your premium. Stopping your premium will increase your expense ratio further because the charges are based on the assumption that your premium continues for 25 years.
Why financial advisers and banks are selling the Zurich Vista like hot cakes? If you look at the benefit illustration, the first year's distribution cost is $42,624. This is more than 100% of the first year premium! If you would to purchase unit trusts from the same financial adviser and assuming 5% sales charge, the first year commission is just 5% * 3200 * 12 = $1,920. If you are the financial adviser, would you sell Zurich Vista (which just invests in unit trusts) or would you sell a plain vanilla unit trusts?
Here is the link to download my excel sheet simulation and the benefit illustration:
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